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Lemley Yarling Management Co
309 W Johnson Street
Apt 544
Madison, WI 53703
Bud: 312-925-5248       Kathy: 630-323-8422

May 31, 2011

Model Portfolio Value As of 31 May 2011

$ 593,301

Comment on Model Portfolio activity

Nokia warned of flat earnings or a loss and we sold for a $1 per share loss. Given current conditions the share price may be under pressure through year end or longer until they can introduce their Microsoft powered smart phone.

DreamWorks is also under pressure today because of less than expected revenue weekend for the opening of Kung Fu Panda II. We added shares.

We also sold Boston Scientific flat and switched the funds to American Eagle slightly lower than we sold the last piece before earnings. The share price/trading volume on AEO has settled since the reaction to the news of two weeks ago.

May 27, 2011

Model Portfolio Value As of 27 May 2011

$ 590,148

May 26, 2011

Model Portfolio Value As of 26 May 2011

$ 586,348

May 25, 2011

Model Portfolio Value As of 25 May 2011

$ 582,971

Comments on Model Portfolio activity

Watch the video: http://dealbreaker.com/2011/05/oppenheimer-analyst-fadel-gheit-thinks-goldman-sachs-morgan-stanley-are-market-manipulators

May 24, 2011

Model Portfolio Value As of 24 May 2011

$ 581,760

24 May 2011 Thoughts

In the last week markets around the world have moved lower as folks have decided that selling is easier than buying and fear has replaced greed.

Earlier this year we decided to moderate our practice of the last ten years of timing market activity. Early in the decade that strategy served us well and reflected our concern with the excess speculation in the housing markets and the greed mentality that the spiraling higher of housing prices had engendered.

We survived 2008 and 2009 by strategic trading. But in the last two years our previous success at timing has failed us and hindered recent results.

We adopted a timing approach because of rampant speculation - first in the tech mania of 1998-2000 -and then in the ensuing mania of the housing/mortgage/ home equity explosion. We expected and feared a very large correction/crash and were willing to forego gains to avoid large losses that a crash would create. We have learned overtime that when the value of an investor’s account drops substantially the investors’ (including our) ability to maintain positions for eventual recovery and profit is severely tested.

The Crash of 2008-2009 was such an event. During that Crash we were severely tested by investor concerns and more so by our own uncertainty regarding the political resolve of the powers to deal with the situation. There was a point in late 2008 that most investment banks and insurance companies were insolvent and aside from the drop in the value of portfolios the ability of the financial system to survive was the more important question. The solutions proffered were not totally to our liking but they worked and we do think the financial system- while not robust – is solvent and capable of dealing with the future.

The difference between now and 2008 is that the markets have recognized the financial problems and priced financial stocks accordingly. And another difference is that speculation is occurring in commodities not stocks or housing. It is our hope that regulators have a handle on the risks involved in the margin speculation that is occurring.

Since the Crash of 2008-2009 and the subsequent return to normal (some overvalued/some undervalued) price levels of stocks we have decided to change our strategy. It is our thought that markets- while volatile- are experiencing relatively normal activity with corrections and rallies (somewhat exacerbated because of High Frequency Computer trading).

The rapid adoption and encouragement of High Frequency Trading by major players and the various exchanges, which have a monetary stake in the high volume trading activity, makes trying to time markets more difficult- witness the Flash Crash of May 2010.

And so we have returned to the investment mode we followed in the 1980s and 1990s of buying out of favor stocks that have value and the potential to gain when problems that are clearly recognizable are confronted. That doesn’t’ mean that all the stocks we own will recover we do expect that the recovery of the majority of stocks.

This market approach with out of favor value stocks worked well in the last century because there weren’t computer programs that valued portfolios on an hourly or even monthly basis. This allowed investors to maintain holdings and weather corrections without the trauma created by seeing accounts and thus net worth drop by 10% to 20% during corrections. We have no answer for the minute by minute pricing of portfolios except to suggest that clients treat their investment portfolios as they do their homes’ value- an investment that over time will rise. Two to three years out - or sooner- our investments will offer above average return. We know that long term holding of investments has been anathema to us over the past 12 years but because our timing crystal ball has cracked we believe our change in style is appropriate.

There has been rampant speculation in the commodities markets this year and the minor popping of the silver and to some extent gold bubble has led to the correction in stocks as speculators and hedge funds turn to selling stocks to raise cash to meet raised margin requirements and cover losses. The uncertainty in Europe over the fate of Greece and Ireland and Portugal has added another worry for global investors. We consider those countries to be no more important than some of the states in the USA that are having financial problems but don’t seem to be on the media radar as causes of worry for the markets. The continuation of China’s economic expansion is another concern. We don’t have the answer for any of these questions but all have created a great Wall of Worry.

The S&P 500 while higher relative to the bottom in 2009 is lower than it was in 2000. Time has wrung the excesses from many stocks and housing and it will eventually in commodities. Oil is overpriced by 100% because of speculation not lack of supply. The opposition parties harping on the end of U.S. financial stability is an election tactic not a belief. Folks are fascinated by negativity-(e.g., murder; accident; sexual peccadillos). Media is ever-present and usually negative. And that negative media emphasizes the excesses to sell advertising not to inform.

All this doesn’t mean that stocks and portfolio values won’t go down. But having survived 1974, 1982, 1987, 2000, 2008-2009 and the Flash Crash of 2010 it’s obvious (or maybe “we are confident”) that we can absorb, survive and profit from whatever the markets choose to give.


May 23, 2011

Model Portfolio Value As of 23 May 2011

$ 581,809

Comment on Model Portfolio activity

We switched Huntington Bank to Dell.

May 20, 2011

Model Portfolio Value As of 20 May 2011

$ 586,979

Comment on Model Portfolio activity

Aéropostale reported forewarned lower earnings but warned going forward and dropped $4 after having dropped $4 when it forewarned. We sold half the position. We made $1.50 - $2 per share trading it in April so today’s loss is somewhat mitigated but still painful. The stock was and is now cheaper but we are not smarter than Mister Market. Because it is cheap we kept half the position. If it moves lower over the summer we have room to reestablish the half position we sold.

For the same reason we sold half our American Eagle which and announces next Wednesday is down in sympathy-The Gap is down $4 on disappointing earnings. Five analysts have cut ratings on AEO in the last few days to preserve their stock picking records which leaves no one to cut when earnings are announced.

On a positive note Hewlett Packard is up today when most of the DJIA stocks are lower. Maybe it has found a bottom.

We also sold Sony (Japan??) and cut some DreamWorks since it announces earnings next week and all our stocks except Dell –which dropped beforehand- have been under pressure when they announced. It’s the kind of market where value stocks just get more valuable.


May 19, 2011

Model Portfolio Value As of 19 May 2011

$ 596,497

Comment on Model Portfolio activity

We sold KBE (Major Bank ETF) for a scratch loss. We own enough individual bank stocks which were purchased after we established the KBE holding.

We took a $1 per share loss on Alcoa. The commodity bubble seems to be deflating at least for a while and we would like to be able to deploy the cash elsewhere on any more market weakness. We have a love/hate relationship with Alcoa (seems cheap/ volatile earnings and huge debt) and we are moving on for now.

We also sold Yahoo for a wash in most accounts. The Alibaba, Alipay imbroglio is too inscrutable for us.

We switched Well Fargo (wash) to BankAmerica and Fifth Third for a more aggressive bank posture

We added Talbots warrants to accounts to lower our average cost to 60 to 90 pennies in many accounts. We have four years for the warrants to work for us and the dollars involved in the latest purchase make the speculation risk/reward attractive. A double in the price of Talbots from its present price would cause a quintuple in the price of the warrants from today’s price if it occurs over the next 15 months.

Jobless Claims Still Elevated; Dudley Defends Fed’s Stance
Posted by Diane Swonk on May 19, 2011

Jobless claims fell to 409,000 in the most recent week, which was less than expected but still too high for comfort. We really need to see jobless claims fall back below the 400,000 threshold again to see a more dramatic (and needed) pickup in job creation. Continuing claims also fell slightly, which is more encouraging, as it could mean that some of the long-term unemployed are finally getting jobs. However, it also could reflect the masses of unemployed who are now running out of their maximum, 99 weeks of unemployment insurance.

There are many reasons for the persistence of jobless claims above the 400,000 threshold, not least of which are temporary production disruptions created by the earthquake in Japan. Vehicle production was particularly hard-hit in April and remained suppressed in May as producers attempted to restore supply chains. The good news is that production in Japan seems to be coming back faster than many expected, so producers here will be recouping losses this summer. In the interim, you might want to wait a bit, until inventories have been replenished, to buy a new vehicle, as shortages have temporarily pushed up the price of both new and used vehicles.

Another more disturbing reason for the persistence of high jobless claims is the run-up in oil prices. The surge in commodity prices likely deferred some hiring until later in the year, as many companies waited to see what effect those prices would have on consumer demand. Discounters and other retailers catering to low- and middle-income households reported a slowdown in spending and fewer trips to the store as oil prices rose. This made it difficult to pass along oil-related price increases to consumers and forced some retailers to cut costs, including workers.

Separately, New York Federal Reserve President Bill Dudley underscored his view that the labor market is still healing too slowly to allow inflation to accelerate, and that even though headline inflation is uncomfortably high, it’s not likely to become self-feeding. He noted that even if hiring picked up by about 30% on a monthly basis, we would still have substantial slack in the labor market by the end of 2012. This provides the rationale for the decision that the Fed made during the April meeting to exit its stimulus program gradually.

Bottom Line: Special factors are exacerbating already weak economic fundamentals and holding back the recovery. That said, the recovery persists, which is better than the alternative, and prospects do look good for a pickup in growth later in the year. I would love to be surprised more on the upside than the downside by the incoming economic data.

Home Sales Disappoint Again in April
Existing home sales edged down 0.8% to a 5.05 million unit rate in April, after being revised down in March. Sales are now running more than 12% below the level hit a year ago when the tax credit for first-time home buyers helped to buoy sales.

Losses were more heavily concentrated in the condo and multi-family than single-family market. Realtors complained that cancellations, due largely to appraisals that fell short of the agreed-upon price, are now shaving 11% of sales from the total. Moreover, a flurry of new rules associated with Dodd-Frank financial market reforms are expected to further constrain credit, particularly for first-time buyers, who along with the extremely wealthy and all-cash buyers are all that the market has left. The result will keep the housing market from recovering to more reasonable levels, despite record affordability and a substantial backlog of pent-up demand in the market.


May 18, 2011

Model Portfolio Value As of 18 May 2011

$ 596,950

Comment on Model Portfolio activity

We eliminated Coldwater and Talbots from accounts. We will hold the Talbot warrants.

Coldwater warned going forward.

Talbots has been a mistake. Period. The recent phone calls clients who own the shares have been receiving from the proxy solicitor asking clients to vote their shares for management is because management needs votes to assure that they will get exorbitant bonuses amounting to over half of last year’s companywide earnings. We are voting by selling. They are spending shareholder money to get bonuses they don’t deserve. Talbot’s warrants are a speculation on eventual recovery and with four years till expiration there is a chance they may help us recover our oversized loss in the shares.

(Each warrant entitles the holder to purchase One (1) New share of Common Stock (NYSE Symbol "TLB") at an exercise price of $14.85 per share. The Talbots Warrants commenced trading on the NYSE Amex on April 21, 2010, under the ticker symbol “TLB.WS.” There are 17.2 million warrants outstanding with an expiration date of April 6, 2015.

Beginning after one year from the date of issuance, Talbots will have the right to accelerate the expiration of the warrants under certain conditions, including if the trading price of shares of Talbots common stock exceeds $19.98 for any 20 trading days within a 30 day trading period.)


May 17, 2011

Model Portfolio Value As of 17 May 2011

$ 595,707

Comment on Model Portfolio activity

(Barron’s) Shares of Hewlett-Packard dropped $3, or 8%, at $37 after the company this morning beat fiscal Q2 revenue and EPS estimates, but cut its full year view below analysts’ estimates, in keeping with a memo from CEO Leo Apotheker reported by The Wall Street Journal last night that suggested tough times ahead. Q2 revenue rose 2.5% to $31.63 billion, yielding EPS of $1.24, versus expectations for $31.5 billion and $1.21.

The company said it, “experienced uneven consumer performance across its product categories during the quarter with continued softness in consumer PCs across all geographies.”

For Q3, the company sees revenue of $31.1 billion to $31.3 billion, and EPS of $1.08 per share. That is below the consensus estimate of $31.8 billion and $1.23.

Revenue for the full year was forecast at $129 billion to $130 billion, and EPS of “at least” $5 per share. That is down from a prior forecast of $130 billion to $131.5 billion, and EPS of $5.20 to $5.28 per share. Analysts have been modeling $130.2 billion and EPS of $5.24.

Revenue in HP’s personal systems group, which contains the personal computer products, was down 5%, year over year. Commercial PC sales were up 13%, while consumer PC sales were down 23%, year over year.

Imaging and printing revenue was up 5%, services revenue was up 2%, enterprise revenue was up 15%, and software revenue was up 17%. HP’s financial services unit delivered growth of 17%.

The company’s conference call with analysts to discuss the results is coming up at 8:30 am this morning, and you can access it here. I believe that Apotheker is scheduled to appear any minute now on CNBC as well.

Update: In a note to clients following the results, Citigroup’s Richard Gardner reiterated a Buy recommendation, and a $65 price target, writing that the weakness in consumer PCs is not unexpected, and that tablet computers may be contributing to it. However, he writes that the $1.08 projection for non-GAAP profit in Q3 suggests that the company is looking at “a fairly material shortfall in services profit” for the quarter. He suspects the company is hiring sales people for services, which may take nine to 12 months to “become productive.”

I would note that Gardner’s first take on HP, last night, after the memo was reported, was that it was “too late” to jump ship, and that with HP’s P/E in the single digits, the stock was already valued as a no-growth enterprise, hence, the intrinsic value of the shares should be higher than this morning’s depressed price.

ISI Group’s Abhey Lamba this morning also reiterates a Buy recommendation and a $54 price target. “While the guide down on revenues for the second quarter in a row is disappointing, the lowering of EPS is even more surprising as the company has delivered a very consistent performance on the earnings front historically. In the last 3 years, the company had never missed its EPS outlook.”

With earnings of $5 for the year Hewlett is cheap at 7.5 X forward earnings. We are adding shares to accounts today on the selloff.


May 16, 2011

Model Portfolio Value As of 16 May 2011

$ 596,661


Very interesting article that explains what is going on with the Mississippi River and the water diversions.

From The New Yorker:   The Control of Nature: ATCHAFALAYA by John McPhee February 23, 1987:



May 13, 2011

Model Portfolio Value As of 13 May 2011

$ 601,242

Comment on Model Portfolio activity

Yahoo is lower again this morning on the Alipay/Alibaba story. Here is an interesting take on the situation:


We added more shares to accounts 8% lower than yesterday’s close using the Dell sale proceeds.

Nvidia beat and has a positive forecast but analysts don’t want to believe management. The share price is down 10% in trading today.

Loved it at $26 hate it at $18. (Forbes) Nvidia beat first-quarter estimates Thursday, and the company's outlook was solid but not outstanding. Nvidia forecast second-quarter sales of about $1.01 billion or 5% sequential growth, which was higher than the $992.4 million top line expected but in line with the pace analysts were looking for.

The overarching competitive issues were discussed on the earnings call with analysts Thursday. Nvidia executives said they expected the flat sales in its core graphics chips to be offset by growth in its mobile-chip business in the second quarter. But analysts questioned the company's assertion that the momentum that its Tegra mobile chips had at the beginning of this year was going to be as sustainable as the executives were forecasting. Specifically, there have been reports that Texas Instruments' OMAP chip has won the reference design for the next generation of Google (GOOG) Android phones running on Ice Cream Sandwich, the upcoming version of the software.

In a better market environment the shares would have popped $1. Instead they dropped $1.80. We are repurchasing our sale of yesterday since we only sold because of our worry about the reaction to earnings. Since earnings and forecast were positive we will go with management and not the analysts.


May 12, 2011

Model Portfolio Value As of 12 May 2011

$ 609,388

Comment on Model Portfolio activity

We took short profits in Nvdia and Dell. Nvidia earnings come tonight and we would rather be out than in for them. Dell is bouncing off its 12 month high and any market weakness may take it back lower to rest the $15 level.

May 11, 2011

Model Portfolio Value As of 11 May 2011

$ 610,160

Comment on Model Portfolio activity

We repurchased Yahoo in accounts to trade as it dropped 8% on the following news:

(Barron’s) Shares of Yahoo! (YHOO) are down $1.39, or 7.5%, at $17.16, perhaps reflecting the company’s notice in a regulatory filing last night that an aspect of its overseas investment is being restructured. In its 10-Q filing with the Securities & Exchange Commission yesterday, the company said part of Alibaba Group Ltd., the China-based e-commerce venture in which Yahoo! holds a 43% stake, is being split off into a separate property.

As Yahoo! notes in its filing:

To expedite obtaining an essential regulatory license, the ownership of Alibaba Group’s online payment business, Alipay, was restructured so that 100 percent of its outstanding shares are held by a Chinese domestic company which is majority owned by Alibaba Group’s chief executive officer. Alibaba Group’s management and its principal shareholders, Yahoo! and Softbank Corporation, are engaged in ongoing discussions regarding the terms of the restructuring and the appropriate commercial arrangements related to the online payment business.

Alibaba, along with Yahoo! Japan, have been consistently seen as a goldmine for Yahoo! amidst the trouble in its core business. Hence, perhaps some volatility in the stock whenever there’s any perceived change in the nature of those investments.

Stocks cratered in response the volatility in the commodities sector where Oil dropped $4 and Gasoline 40 pennies per gallon on news of an unanticipated inventory build. The Oil/Gold/Silver trade is very crowded with hedge funds and mom and pop and that affects stocks in that when margin requirements are raised or there are margin calls some folks including big boys and girls have to sell stocks to raise cash.


May 10, 2011

Model Portfolio Value As of 10 May 2011

$ 614,684

Comment on Model Portfolio activity

We added to our Boston Scientific position after the shares dropped 10% in price at midday on news that the CEO will retire in December. CEOs come and go. Unless there is other news the drop was not warranted although it was good for the CEO's ego but not the shares he holds.

May 9, 2011

Model Portfolio Value As of 9 May 2011

$ 610,229


Asia was slightly lower overnight as is Europe at midday. Greece’s rating was lowered by S&P (yawn) but that is the negative news of the start of trading that has the markets in neutral. For some reason the 3% rally in the dollar over the past few days is also a negative. But the drop is the dollar over the past year has been a negative. Go figure. Oil is up $3 to $100 so the $4 per gallon local gas price only has to drop 7% this week to meet the drop in the price of oil. Fat chance. Gold is up $15 to $1506.

Easy come easy go:
(Huffington Post) Home values fell 3 percent during the first three months of this year, for the biggest quarterly drop since 2008, according to a new report from data provider Zillow. Even as the stock market climbs to three-year highs, and as payrolls tentatively expand, housing continues to fall in almost every U.S. metro area. Prices won't find a bottom until 2012 at the soonest, Zillow predicts, meaning American homeowners could be in for at least another year of pain.

"Home value declines are currently equal to those we experienced during the darkest days of the housing recession," Zillow chief economist Stan Humphries said in a statement. "With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011."

Even though the recession officially ended in June 2009, the real estate market has yet to hit bottom. Since the peak in 2006, home values nationally are down 29.5 percent, Zillow says. Compared to this time last year, prices are down 8.2 percent nationally.

(crooksandliars.com) The economy added 1.3 million private-sector jobs between February 2010 and January 2011, and the headline unemployment rate edged downward, from 9.8% to 8.8%, between November of last year and March. It inched upward in April, to 9%, but tempering that increase was the news that the economy added 244,000 jobs last month (not including those 62,000 McJobs), beating economists' expectations.

Under this somewhat sunnier news, however, runs a far darker undercurrent. Yes, jobs are being created, but what kinds of jobs paying what kinds of wages? Can those jobs sustain a modest lifestyle and pay the bills? Or are we living through a McJobs recovery?

The evidence points to the latter. According to a recent analysis by the National Employment Law Project (NELP), the biggest growth in private-sector job creation in the past year occurred in positions in the low-wage retail, administrative, and food service sectors of the economy. While 23% of the jobs lost in the Great Recession that followed the economic meltdown of 2008 were “low-wage” (those paying $9-$13 an hour), 49% of new jobs added in the sluggish “recovery” are in those same low-wage industries. On the other end of the spectrum, 40% of the jobs lost paid high wages ($19-$31 an hour), while a mere 14% of new jobs pay similarly high wages. As a point of comparison, that's much worse than in the recession of 2001 after the high-tech bubble burst. Then, higher wage jobs made up almost a third of all new jobs in the first year after the crisis.

The hardest hit industries in terms of employment now are finance, manufacturing, and especially construction, which was decimated when the housing bubble burst in 2007 and has yet to recover. Meanwhile, NELP found that hiring for temporary administrative and waste-management jobs, health-care jobs, and of course those fast-food restaurants has surged.

Indeed in 2010, one in four jobs added by private employers was a temporary job, which usually provides workers with few benefits and even less job security. It's not surprising that employers would first rely on temporary hires as they regained their footing after a colossal financial crisis. But this time around, companies have taken on temp workers in far greater numbers than after previous downturns. Where 26% of hires in 2010 were temporary, the figure was 11% after the early-1990s recession and only 7% after the downturn of 2001.As many labor economists have begun to point out, we're witnessing an increasing polarization of the U.S. economy over the past three decades. More and more, we're seeing labor growth largely at opposite ends of the skills-and-wages spectrum -- among, that is, the best and the worst kinds of jobs.

(NYT) Nvidia Corp. placed a $367 million bet on a novel technology for wireless chips to help build its foothold in smartphones and tablet-style computers.

The Silicon Valley chip maker on Monday struck an all-cash deal for Icera Inc., a start-up in Bristol, England that has spent nine years pursuing an unusual programmable technology for what the industry calls baseband communication functions.

Nvidia, a specialist in computer graphics, has added microprocessor technology to compete in mobile devices—but also needs baseband capability to match rivals such as Qualcomm Inc. and Intel Corp.

"As a result of this acquisition we have two of the most important processors in mobile computing," said Jen-Hsun Huang, Nvidia's chief executive, in an interview.

Most companies add special circuitry for each set of communications protocols. Icera, by contrast, designed more general-purpose processors that use software to handle different wireless standards.

That means the same chip could work on 2G, 3G and 4G cellular networks, for example, and be upgraded to handle new features. Each piece of silicon also tends to be smaller, a savings in space and manufacturing cost, Icera says.

Icera, founded in 2002, raised some $250 million in venture capital over the years. Stan Boland, its president and chief executive, says the company started out with accessories known as dongles that help laptop computers connect to wireless networks. He said Icera is just starting to deliver samples of its chips aimed at cellular handsets.

Mike Thelander, an analyst with Signals Research Group, said his firm recently conducted tests that found Icera's technology was within "spitting distance" of market leader Qualcomm's. But he believes Icera has struggled to get accepted by cellphone makers, because of concerns about its size and staying power.

As a result of the deal, Mr. Thelander said, Icera has the backing of a big-name company and Nvidia gets the baseband capability it needs to offer customers a more complete bundle of technology. "It's really a win-win-win," he said.

Mr. Huang said Nvidia still expects its chips to work alongside baseband processors from other companies, when customers prefer it. Meanwhile, having an in-house baseband technology makes it more feasible to create products that combine a microprocessor and baseband on one piece of silicon.

Most smartphones and tablets now keep those functions separate, Mr. Huang noted, but such integrated products are at least a theoretical possibility as a result of the deal. "We don't have any plans at the moment, but we certainly have the ability to do it," he said.

Nvidia, which reports its fiscal first-quarter earnings on Thursday, said Monday it sees the deal slightly trimming its operating profit through the first half of the 2012 calendar year, and adding to it in the second half of next year. The deal has been approved by both companies' boards and is expected to be completed in 30 days.

Oil gained $5 so any gasoline price changes are off. Sorry. Gold regained $16. The major market measures traded higher most of the day with little conviction- also known as no volume. Breadth ended the day positive.


May 6, 2011

Model Portfolio Value As of 6 May 2011

$ 608,764


Oil is down another $2 to $97 and Gold is weak but only down $2 as the trading day begins. Asia was mixed overnight and Europe is higher at midday as markets await the Employment Report.

U.S. economy adds 244,000 jobs in April; unemployment rate is 9%. Total private payrolls increased 268,000 which is the largest monthly increase since April 2006. The numbers were better than and the major market measures are higher on the news.

When you know what your customers are doing:

(WSJ) J.P. Morgan Chase & Co.'s trading activities recorded a net gain in every trading session for the first quarter, the company said in a filing early Friday.

The bank, the second-largest U.S. bank by assets behind Bank of America Corp., said the so-called perfect quarter included average daily revenue of $112 million in the trading operations. Seven days in the period, which ended March 31, had more than $160 million in revenue.

J.P. Morgan had posted a perfect quarter in the fourth quarter, as well, but Jes Staley, the head Morgan's investment bank, said at the time he didn't expect that to continue. Mr. Staley, when revealing the fourth quarter's performance at the bank's investor day said, "I fully expect trading loss days to come back."

For 2010, the bank had a daily net loss only eight times, all in the second quarter. In 2009, the bank had 42 days of losses and it had 97 in 2008.

Bank of America also said it posted a perfect quarter during the first three months of the year.

We switched Barnes & Noble with a nice short profit to Aéropostale.

(thinkprogress.com) According to a new USA Today analysis, personal taxes — including federal and local — are at their lowest level since 1958: Americans are paying the smallest share of their income for taxes since 1958, a reflection of tax cuts and a weak economy, a USA TODAY analysis finds. The total tax burden — for all federal, state and local taxes — dropped to 23.6% of income in the first quarter, according to Bureau of Economic Analysis data. As McClatchy’s Kevin Hall wrote yesterday, “At a time when Washington is wrestling with how to end federal budget deficits and trim the national debt — huge questions that are expected to dominate the nation’s politics through the 2012 elections — the fact that Americans are under-taxed compared with U.S. historic norms is central to the discussion.” The USA Today analysis shows that if tax receipts today were at the level they were through the 70s, 80s and 90s, that would eliminate “one-third of the estimated $1.5 trillion federal deficit this year.”

The major market measures were up over 1% after three hours of trading when a rumor swept to internet that Greece was leaving the Euro-Zone- or maybe not- or maybe would default or maybe who knows. The major measures quickly lost two/thirds of the gain as the HFT kids pushed their buttons before stabilizing at lower levels. And so goes investing in the world of High Frequency Trading.

The major market measures managed to hold some gains into the close in light trading. Breadth was 2/1 to the good. The S&P 500 closed at 1340 support/former resistance.


May 5, 2011

Model Portfolio Value As of 5 May 2011

$ 605,031


"Giving debt relief to people that really need it, that's what foreclosure is."[Homeowners] are probably better off going somewhere else, because they get relieved almost 100% of the debt through foreclosure." Jamie Dimon, CEO of JP Morgan.

The market measures are lower pre-opening as Jobless claims jumped to 474,000 when 400,000 were expected. Oil has a $106 handle and Gold is back down to $1500 as the trading day begins. European bourses are 1% lower at midday and Asia was mixed small overnight.

As we were just saying:

(WSJ) In the first four months of this year, average daily trading volume of stocks listed on the New York Stock Exchange and Nasdaq Stock Market is down 15% from 2010's pace, running at an average rate of 6.3 billion shares a day. Volume has been edging lower throughout the year, with April's daily average of 5.8 billion shares marking the slowest month since May 2008.

"The ripple effects across trading from the lack of fundamental demand are very real," said Jose Marques, global head of electronic equity trading at Deutsche Bank AG.

Volume had marched higher for most of the last decade, escalating during the financial crisis. It doubled between 2006 and March 2009, when an average of nine billion shares changed hands every day.

A big reason for the decline in volumes has been a general quieting of the big swings in stock prices commonly seen from 2008 through the first half of 2010. That has been reflected in a decline in the Chicago Board Options Exchange volatility index, also called the VIX, which last month fell to its lowest level since July 2007.

The declines in volatility and volume have been bad news for high-frequency traders, whose strategies generally rely on squeezing profits out of the tiny differences between the buy and sell orders of stocks within a fraction of a second. High-frequency traders also act as liquidity providers in the market, often taking the other side of a trade from long-term investors.

(WSJ) General Motors Co. said Thursday its net income tripled in the first quarter due to stronger vehicle sales and sales of assets, including its stake in Delphi Automotive LLP.

GM said net income rose to $3.2 billion or $1.77 a share, from $865 million or 55 cents a share, beating analyst estimates of about 93 cents a share. Operating profit, reflecting the strength of its core automotive business, increased to $2 billion from $1.7 billion. Revenue increased 15%, to $36.2 billion, from $31.5 billion.

(streetinsider.com) Aéropostale (NYSE: ARO) reports total sales for Q1 were $469.2 million, up 1 percent from the same period last year. Same store sales down 7 percent. ARO lowered its Q1 EPS guidance from 35-38c to about 20c. The Street was looking for quarterly EPS of 37c. We repurchased shares as the stock price fell $3.80 on the news. We have traded ARO profitably for past few years.

Diane Swonk, Chief Economist Mesirow Financial:
Productivity Growth Slows; Unemployment Claims Surge

Productivity growth slowed to a 1.6% pace in the first quarter and 1.3% compared to a year ago. This helps explain why net hiring has improved, but not enough to prompt workers who were sidelined by the recession to throw their hats back into the ring and rejoin the labor force.

In a related development, unit labor costs rebounded after contracting in the fourth quarter, but remain limited. This, along with rising input costs has put a bit of a squeeze on profit margins. The exception is the manufacturing sector, where productivity growth rose at a 6.3% pace and unit labor costs continued to plummet. Indeed, our manufacturing workers are easily the most productive in the world, a fact too often overlooked by those predicting the end of American manufacturing.

Separately, unemployment claims surprised many and surged by 43,000 to 474,000 at the end of April. Several factors contributed to the rise, not least the disruption in Japanese production and a new extension of unemployment benefits in Oregon. That said, it is hard to ignore the fact that claims have been trending in the wrong direction - up instead of down - in April. This coupled with some renewed concern about the European debt crisis, which marked the start of a slump in growth last spring and summer, is not exactly reassuring.

Bottom Line: Today marks the infamous "flash crash" of a year ago. Although the U.S. economy appears to be on more stable footing than it was then, it provides a useful reminder of how weak the recovery still is. Labor markets are taking a particularly long time to heal. Some of the weakness is transitory, but that provides little solace for those who are now running out of employment benefits.

Silver is down $3 today and 25% in price since last Friday. Oil is down $6 to $102 which may be related to some trapped longs in Silver.

Tomorrow the Government Employment Report for April will please either the bulls or bears or maybe no one. Today’s market action is being influenced by the devastation being experienced by commodities bulls who are getting their lunch and dinner handed to them on a silver platter.

The major measures closed down 1% and more in moderate trading. Breadth was 3/2 negative. And tomorrow is another day. Oil closed down 10% today at $98. Maybe gasoline prices will drop 10%. Not. Gold lost $46 to $1468 and Silver ended at $35.52.


May 4, 2011

Model Portfolio Value As of 4 May 2011

$ 611,186


Asia was mildly lower overnight and Europe is mixed at midday. Gold is down $8 and Oil has a $110 handle with U.S futures flat as the trading day begins. ADP suggests 179,000 jobs were created in April which is lower than hoped. The Government number comes Friday for the big boys and girls to have their fun.

Diane Swonk, Chief Economist Mesirow Financial:
ADP Employment Falls Short of Hope

The ADP report on private sector employment rose by 179,000 in April, less than expected, as hiring cooled slightly in the face of higher energy prices and the associated political uncertainty in oil-producing countries. Gains were concentrated in small and mid-sized firms. We are beginning to see the payoff from the surge in initial public offerings (IPOs) at the end of 2010, which is creating a tailwind. Young firms, in particular, which are often counted as small businesses, are finally hitting a critical mass and hiring. Facebook and its plan to hire more than 20,000 workers, more than McDonalds is just one example.

Indeed, gains in the service sector, which includes many emerging companies, far outpaces gains in manufacturing. Hiring in the manufacturing sector is still on the upswing for both blue- and white-collar workers.

Bottom Line: Today's ADP report, coupled with some disappointing increases in jobless claims in recent weeks, suggest that the "official" report on payroll employment for April will also disappoint on Friday. Public sector layoffs, in particular, are expected to remain elevated and add to the headwinds for private sector employment, which also moderated a bit over the month.

On May 2 we mentioned that margin retirements on Silver had been raised to $16,200 per contract. We neglected to mention that the contract controlled 5000 ounces of silver and thus was worth $250,000 when silver was at $50 an ounce last week. Today with silver at $39 an ounce that one tract is worth $195,000. If a speculator had put up the minimum of $14,000 required last week that speculator would be wiped out and owe $41,000.

The major market measures are 1% lower at midday with the S&P near support and former resistance of 1340.

The major market measures closed lower in usual trading. Breadth was negative and the financials were for sale all day.


May 3, 2011

Model Portfolio Value As of 3 May 2011

$ 612,183


Asia and Europe were lower overnight. Gold is $1544 and Oil has a $112 handle as the trade day begins. U.S stocks opened lower but re flat lining after one half hour of trading.

(streetinsider.com) FBR Capital reiterates an 'Outperform' on Fifth Third Bancorp (NASDAQ: FITB), PT $17. FBR analyst says, "NPAs declined in the C&I, construction, and residential portfolios, but there was a slight tick up in CRE NPAs. The modest increase in CRE NPAs prevented a more meaningful increase in reserve releases from $190M in 4Q10. This is likely a result of the company's continuing drag from its Michigan and Florida CRE loan portfolio. On the earnings front, pre-tax, pre-provision earnings also declined, but should be sustainable through FY11 as mortgage banking bounces back slightly from a poor quarter. With a strong capital base and relatively attractive valuation of 9.7x FY12E EPS, FITB should be positioned to outperform when it starts to put its capital to work. We are increasing our FY11 operating EPS estimates to $1.20 from $1.05 due to the current quarter's results and lower provisions and maintaining our FY12 operating EPS estimate of $1.40."

The reason NVDA is down this morning is this story on thestreet.com which is old new news: The new desktop iMacs feature Intel's new 32-nanometer technology, which uses quad core processors and a Turbo Boost feature to crank up the computing speeds. The iMacs also house the Thunderbolt -- a speedy variation on the USB and FireWire data connections -- that was developed for Apple by Intel. Prices of the iMacs range from $1,200 to $2,000 and each option includes the Sandy Bridge quad-core chip.

The move, though expected, is a welcome endorsement for Intel, after the chip maker got off to a rocky start earlier this year when it had to recall the first shipments of its new processors. And while Apple embraced Intel for its computing processors, it also put AMD in the inner circle by choosing its ATI Radeon graphics processors for all the iMacs.

This chip choice is bad news for graphics chip rival Nvidia which had been in previous versions of the iMacs.

Morgan Stanley Joins Funds Buying Commodities as Goldman Sachs Says ‘Sell’:


We can’t be that lucky.

(streetinsider.com) May 3, 2011 10:26 AM EDT
Shares of Alcoa, Inc. (NYSE: AA) are higher in early trading Monday on unsubstantiated takeover rumors. While Alcoa has been the target of takeover speculation in the past, today's rumors appear to have originated with trading sources and likely have little merit. Nonetheless, shares of AA are up 2.5 percent to $17.65. Yesterday, Goldman Sachs upgraded shares of AA to Buy, citing improving supply chain dynamics. In addition to today's rumors, the stock could be seeing follow-through from this bullish call.
UPDATE: Reuters reported that the rumored suitor for Alcoa (NYSE:
AA) is Rio Tinto (NYSE: RIO). According to traders, rumors are they secured a $US25 billion syndication loan to acquire Alcoa for $US25.5 per listed share.

And so how do you tell your wife not to go shopping?

A rookie trading card for Wayne Gretzky sold to an anonymous bidder for $94,163, a record for a hockey card, SCP Auctions, Inc. said on its website. Hall of Famer Gretzky, 49, holds National Hockey League records for goals, assists and points. He led the Edmonton Oilers to Stanley Cup championships in 1984, 1985, 1987 and 1988 and retired in 1999.

GM sales up 24% in April; Chrysler’s up 22%; and Ford’s were up 16%.

The major market measures closed lower with the S&P down 0.5% and NAZZ losing .75% while the DJIA was positive at the close on programs. Financials had a bid all day and breadth was flat with volume light as usual. Maybe light volume is moderate volume.


May 2, 2011

Model Portfolio Value As of 2 May 2011

$ 611,406


Oil is down $1 and Gold is flat as the trading day begins. Asia was higher although China was closed and Europe also is firm. U.S. futures indicate a higher opening. Talking heads are giving the death of Bin Laden as the reason for the positive tone.

We are adding Alcoa to accounts. We traded for profit last year and then it got away from us. We are buying gingerly because it has been volatile for the last three years. It has a huge amount of debt which offers earnings leverage but that leverage goes both ways. (StreetInsider.com)Goldman Sachs upgraded Alcoa (NYSE: AA) from Neutral to Buy and raised their 6-month price target from $17 to $22, citing improving supply chain dynamics. The firm states, "We view the structural industry change, driven by the de-linking of alumina from the aluminum price, as a potential major long-term contributor to Alcoa, which is the largest global third-party alumina seller." Goldman is also positive on the cyclical upturn in the aerospace cycle. The firm sees Alcoa earnings $1.40/$1.65 in 2011/2012, up from $1.10/$1.25, and about 6%/11% higher than consensus. The firm said Alcoa can earn $1.95 on a normalized basis.

Last Friday we added Microsoft to accounts after it sold off even though earnings and sales were above expectations. (briefing.com) Microsoft (MSFT $25.89 -0.82) reported third quarter earnings of $0.61 per share, including a $0.05 tax benefit primarily related to an agreement with the IRS to settle a portion of their audit of tax years 2004 to 2006, $0.05 better than the Thomson Reuters consensus of $0.56. Revenues rose 13.3% year-over-year to $16.43 billion versus the $16.19 billion consensus.

Microsoft Business Division revenue grew 21% year-over-year. Server & Tools revenue grew 11% year-over-year, the fourth consecutive quarter of double-digit growth. Online Services Division revenue grew 14% year-over-year primarily driven by increases in search revenue. Bing's US search share increased to 13.9% this quarter. Entertainment & Devices Division grew 60% year-over-year, fueled by Kinect for Xbox 360, the fastest-selling consumer electronics device in history, continued strong Xbox 360 console sales and growth of Xbox Live.

Microsoft reaffirmed its operating expense guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011. Microsoft also offers preliminary FY12 operating expense guidance of 3% to 5% growth from the mid-point of fiscal year 2011 guidance or $28.0 billion to $28.6 billion. Office had another huge quarter, again exceeding everyone's expectations, and the addition of Office 365 will make our cloud productivity solutions even more compelling. We continue to see strong adoption of our cloud-based services among the Fortune 500."

We also added Goldman Sachs to a few larger accounts for a trade.

Back during the Hunt Silver corner in 1979 the Commodities exchanges first raised margin requirements and then allowed no more opening positions in silver. In effect the exchanges changed the rules. The same may happen again. The house never loses and if someone knows when the house is going to change the rules they can make a lot of money.

(Bloomberg) Silver prices fell sharply Monday after CME Group hiked the amount of cash needed to hold speculative positions in the metal, while gold declined on news that al Qaeda leader Osama bin Laden had been killed in a U.S.-led operation in Pakistan. Initial margins increased to $14,513 a contract from $12,8525, effective from the close on April 29, CME, parent of the Chicago Board of Trade and Chicago Merc, said in a statement.

Diane Swonk, Chief Economist Mesirow Financial:
Construction Bounces Back; Manufacturing Remains Robust
Construction spending increased a stronger-than-expected 1.4% in March after losing ground in February, but gains remained uneven. Residential construction actually increased, but compared to very low levels. There were also some increases in commercial and public construction. Transportation was off compared to March of last year; much of that activity is funded by state and local governments, many of which are cutting everywhere that they can to offset revenue shortfalls. Not surprisingly, construction on educational buildings was also curtailed compared to last year, a harbinger of cuts in the pipeline for teachers as well.

Separately, the Institute for Supply Management (ISM) manufacturing index decreased to 60.4 in March, but remained well above levels consistent with robust manufacturing activity. Order backlogs, in particular, improved as many tried to stockpile inventories ahead of commodity-led price increases. Manufacturers were divided, however, on their ability to pass on higher input costs and many complained of the toll those higher input prices took on profit margins. Manufacturers engaged in exporting were better able to pass along price increases to foreign buyers, who are experiencing stronger economic growth.

Bottom Line: The economic and political news today looks a little better than it did last week. There is a sense of relief. Nothing, however, can bring back the nights of sleep lost during the height of the financial crisis or during the months after 9/11. I hope the events of the last two days provide some sense of closure to those who suffered and give our troops the purpose and validation they deserve in serving our country.

We sold Yahoo for an almost $3 gain and placed part of the profit in Talbots warrants. They are our 4 year – so far not so good speculation – on Talbots eventually recovering.

The major market measures couldn’t hold their Osama is dead gains and closed mildly lower on the day in light trading. Breadth was negative at the bell. Gold ended at $1544 and Oil was $113.14.


We plan on being in business for at least the next twenty years and with this in mind we are changing the frequency and content of our internet posts. We will maintain our concentration on market activity while we simplify our business day. We have been writing about the markets for 27 years - on a daily basis for 12 years - and giving investment advice for 45 years. Our guess is that while we haven’t seen and said it all we are pretty close to having exhausted any new words of wisdom we might wish to convey. Markets don’t repeat but they do rhyme. By not posting dally we will be freed up to do some summer/winter activities such as gardening/snowshoeing, riding our horses, walking the dogs and spending a bit more time with the prince and princess when they visit. And so we are going to end our lengthy daily comments but we will continue to post periodically when market events warrant and/or when there is activity in the Model Portfolio.




















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